Rand Paul nails it with his tax code replacement proposal

I like very much when I see candidates for any office - but especially for the presidency - propose ideas that don't just nudge things a bit in one direction or another, but that actually solve problems. So I really liked when Rand Paul, via an op-ed in the Wall Street Journal published yesterday, proposed to rip out the tax code by its foundations and start over with a simple, flat tax of 14.5 percent on individuals and businesses.

The best thing about this proposal is that Paul recognizes what too many of his rivals for the Republican nomination seem to miss, which is that you're not going to get the federal tax code right by fiddling with it and tweaking it. The Leviathan we find ourselves with today is so riddled with complexities and traps - all of them designed to empower politicians and the IRS - there's no way you eliminate the problems it creates by adding a tax credit here or lowering a rate there. You have to kill it. Dead. Then you have to institute something new is designed solely to fund government operations, without giving Congress and the IRS tricky little mechanisms by which to manipulate people's behavior - while also having the virtue of being easy to understand and simple to comply with. I see that Sen. Paul consulted with economists Stephen Moore and Arthur Laffer, and with former Forbes publisher and presidential candidate Steve Forbes, in the development of his plan. Excellent. I know all three men, and I have sought their advice to varying degrees over the years. And when I read the Paul plan, it sounded kind of familiar. The major difference between what he calls the Flat and Fair Tax and my 9-9-9 plan is that he doesn't propose a national sales tax as part of the package - opting instead for a tax with a somewhat higher rate that applies only to income earned by individuals and businesses. Here are some more details about how it works:

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My tax plan would blow up the tax code and start over. In consultation with some of the top tax experts in the country, including the Heritage Foundation’s Stephen Moore, former presidential candidate Steve Forbes and Reagan economist Arthur Laffer, I devised a 21st-century tax code that would establish a 14.5% flat-rate tax applied equally to all personal income, including wages, salaries, dividends, capital gains, rents and interest. All deductions except for a mortgage and charities would be eliminated. The first $50,000 of income for a family of four would not be taxed. For low-income working families, the plan would retain the earned-income tax credit. I would also apply this uniform 14.5% business-activity tax on all companies—down from as high as nearly 40% for small businesses and 35% for corporations. This tax would be levied on revenues minus allowable expenses, such as the purchase of parts, computers and office equipment. All capital purchases would be immediately expensed, ending complicated depreciation schedules. The immediate question everyone asks is: Won’t this 14.5% tax plan blow a massive hole in the budget deficit? As a senator, I have proposed balanced budgets and I pledge to balance the budget as president. Here’s why this plan would balance the budget: We asked the experts at the nonpartisan Tax Foundation to estimate what this plan would mean for jobs, and whether we are raising enough money to fund the government. The analysis is positive news: The plan is an economic steroid injection. Because the Fair and Flat Tax rewards work, saving, investment and small business creation, the Tax Foundation estimates that in 10 years it will increase gross domestic product by about 10%, and create at least 1.4 million new jobs.

The left will surely scoff at that last part, but spurring economic growth is the number one reason we need to replace the tax code. The left either doesn't understand or refuses to admit how badly the current tax code is dragging down the GDP. Even after yet another quarter of negative growth like the one we had in the first quarter of 2015 (the second quarter of negative growth in the last five), they still don't seem to get that what we're doing now isn't working. A simpler tax code would spur growth in any number of ways. One is that people wouldn't waste so much money paying tax preparers and consultants to lower their tax bills, because there would be no incentive to shelter income or strategically direct it in ways you would otherwise never do. You simply pay your 14.5 percent and you're done. And by trading most of the deductions for lower rates, you eliminate most of the excuses for the IRS to audit you. If you've ever been audited - and I have, curiously right after I challenged Bill Clinton on national television about the merits of HillaryCare - then you know what a good thing it would be to take away this power from such an abusive federal agency. But most importantly, a new, simpler tax code would free up trillions in capital to be put to work producing goods and services, and creating jobs. If you really don't understand how much otherwise productive capital the tax code sucks out of the private economy, just wait and see what happens when that capital is returned to the productive sector of the economy. That would be the private one. I'll be watching to see if other candidates come forth with their own proposals to replace the tax code. I hope so. The more Republicans talk in these terms, the more that will help to shape the debate. I'd love to see Hillary Clinton try to defend the status quo tax code while Republicans debate how best to replace it. That is the type of debate we need to have in this country, and hurray to Rand Paul for getting it started in this way.